The discussion of odious debt in comments below reminded me of this story:
Back when I was interning as a religious corporate gadfly, I got to tag along with the Sisters of Mercy to the annual meeting of a prominent investment bank.
The bank's board seemed to think that the sisters were misnamed. They had been lobbying the bank for years to forgive millions of dollars of loans made to various authoritarian governments in Latin America, and the sisters had been relentless, if not merciless, in these negotiations. The tiny little British chairman — Sir someone or other — began casting nervous and exasperated looks at the sisters even before he called the meeting to order.
When it came time to discuss the shareholder resolution from the Sisters of Mercy, Sir Whatsis announced that the resolution was no longer relevant, because the bank was, ahem, "writing off" a good chunk of the debt in question. But, he insisted, this was a separate, business decision made wholly on the grounds of business considerations. Then he got a bit squeaky and angry looking, pointing directly at the sisters, and insisting that he didn't want to hear anyone referring to this purely business decision as "debt forgiveness."
The sisters had argued for years that this was "odious debt." The bank had loaned gazillions of dollars to government entities that did not represent the interests of their people or govern with their consent. Yet the bank insisted that the people of those nations were obliged to repay these loans. The sisters had argued that those people had no such obligation. That was the moral part of their case.
But the sisters had also argued that it was in the bank's best business interest to cut its losses. The bank had made a bunch of bad loans, backed up only by the good faith of a bunch of petty tyrants who turned out to be bankrupt swindlers and thieves. The bank was never going to see that money again, and the sooner it got this bad debt off its books the better off it would be in the long run.
Sir Whatsis eventually, belatedly, came around to this second part of the sisters' argument, and millions of dollars of bad debt was written off. I think he might have privately accepted the first part of the sisters' argument as well, but he didn't want to say so publicly because if you start throwing around words like "odious debt" and "forgiveness" then pretty soon you'll have to start writing off even more billions of dollars of such debt made to other bygone kleptocratic regimes elsewhere in the world.
I'm willing to accept Sir Whatsis' terms for the sake of argument here, just to focus on the one point he agreed to publicly: It's bad business to keep bad loans on the books.
Money that cannot be repaid will not be repaid. You can keep listing such debt as an asset year after year — perhaps even increasing the imaginary balance with fees, penalties and compounding interest — but this is pure fantasy. It's a bad sign for a bank, business-wise, when their balance sheets contain such fantasies.
The bankers who hold so much of this fantastic third-world debt don't have to use words like "debt forgiveness" or "Jubilee." They don't have to stand in the temple and proclaim the year of the Lord's favor. But they do need to reconcile with reality.
Ad-Free & Subscriber Log-In